What is an Incoterm?

TABLE OF CONTENTS

• What does the Incoterms acronym mean?
• What is an Incoterm?
• What do Incoterms Cover?
• What don't Incoterms cover?

Incoterm rules govern international trade by defining the shipping responsibilities of buyers and sellers. They outline cost allocation, transfer of responsibility, and risk management during transportation. 

What does the Incoterms acronym mean?

Incoterms (International Commercial Terms) 

What is an Incoterm?

Incoterms are a standardized set of rules that clearly:

• specify the responsibilities of buyers and sellers in a shipping contract
• determine who's obligated to cover expenses like insurance, freight, and transportation costs
• define the precise points at which cost responsibilities and the transfer of risk shift between the parties involved. 

There are 11 Incoterms rules across four categories—C terms, D terms, E terms and F terms. Some terms apply to marine freight only; the rest cover all modes of transportation. Once agreed upon, Incoterms rules are normally recorded in the sales contract and associated documentation. These rules are revised every 10 years by the International Chamber of Commerce Commission (ICC).

What Do Incoterms Cover?

• Delivery points
• Transfer of risk
• Obligations like insurance and customs duties
• Separation of costs
• Mode of transportation

What Don't Incoterms cover?

Incoterms rules don't address dispute resolution or payment. All areas of contractual concern must be addressed in the sales contract, the invoice or the purchase order.

Learn More:

• Incoterm Rules for Shipping Freight
• Understanding the 3-Stages of Incoterms